Looking Closer at Indonesia's Electric Vehicle Growth Dilemma

Looking Closer at Indonesia's Electric Vehicle Growth Dilemma

The rapid adoption of electric vehicles (EVs) has taken center stage, prompting countries in the region to embrace the electric car revolution. However, like any major change, the transition to sustainable mobility is not without significant challenges.

Governments and automakers see EVs not only as a solution to reducing air pollution and dependence on fossil fuels, but also as a potential economic opportunity. However, there are still many concerns, and the Indonesian public is no exception.

The Indonesian government is taking a bold step by using the Jakarta Auto Show as a venue to step up efforts to promote the production and sales of electric vehicles in Southeast Asia's largest automotive market. The Gaikindo Indonesia International Auto Show (GIIAS) will be held from August 10 to 20. However, despite these efforts, potential buyers are still hesitant.

Electric vehicles (EVs) have their appeal, but higher-than-average prices, questions about the availability of charging stations, and uncertainty about new brands are factors that make them reluctant to invest at this time. 

According to Reuters, Indonesia has high growth ambitions in the electric vehicle industry, competing with countries such as India and Thailand to build an electric vehicle ecosystem as an alternative to the dominance of China, the world's largest automaker. However, the number of electric cars on the road today is still less than 1% of the total number of vehicles in operation.

The bold move by the Indonesian government to reduce the VAT rate on electric vehicles from 11% to just 1% has created a buzz in the market. The impact is immediately felt on the price of affordable electric vehicles such as the Hyundai Ioniq 5, which now hovers below the US$45,000 threshold, down from over US$51,000 in Indonesia.

Within this range, there are only two electric cars that speak for themselves, namely Wuling's Air EV Lite (0305.HK) and Seres Group's E1 (601127.SS), with a price tag of around US$12,300. The lowest price for a gasoline-powered car in Indonesia, such as the Daihatsu Ayla, is under $9,000. (Based on the exchange rate of $1 = 15,280,0000 Rupiah).

China's Seres Group has entered into a partnership with technology giant Huawei (HWT.UL) in the production of electric vehicles, which is gaining traction.

For perspective, one of China's most popular electric vehicles, the BYD Seagull (002594.SZ), costs more than $10,000. However, reaching that figure is a challenge even for other Chinese automakers, even if they want to enter the export market.

On the other hand, BYD's ATTO 3, which topped the list as the most desirable electric car in the Southeast Asian region in the first quarter, has a price tag of more than US$31,000 in Thailand.

Toyota (7203.T) and its affiliates Daihatsu and Honda (7267.T) account for about two-thirds of total car sales in Indonesia, but their transition to electric vehicles has been a rather slow one.

Toyota said it has no concrete plans to assemble electric cars in Indonesia. On the other hand, Indonesia's Ministry of Industry recently announced at the just-concluded auto show that automakers will be given another two years to meet production incentive requirements.

This decision was followed by investment commitments from China's Neta EV brand and Japan's Mitsubishi Motors (7211.T), which showed enthusiasm for the Indonesian market. Meanwhile, Indonesia itself has set an ambitious target of producing around 600,000 electric vehicles by 2030, a figure that represents more than 100 times the country's total car sales in the first half of 2023.

Indonesia's economic minister also expressed confidence that the Jakarta auto show would be able to push sales past the 26,000-vehicle mark, which was the number of vehicles sold at the previous year's similar show. However, final information on total car sales, including the share of electric vehicles, is not yet available.

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